Trust distributions

It helps to recognise common errors so you can avoid them. One common error is where a trustee states they are distributing the trust profits among the trust beneficiaries, but certain beneficiaries don’t actually receive their benefit or someone other than that beneficiary receives the benefit. 

Under normal circumstances where the beneficiary receives their benefit, they report it in their tax return and pay tax on it at their appropriate tax rates. Very generally speaking, when the ATO identifies an error where the intended beneficiary has not received the benefit or it goes to another beneficiary or other related party, the benefit is assessed to the trustee at the top marginal tax rate. These situations can be complex and there can be exceptions to this situation. 

These types of arrangements fall under the rules in Section 100A of the Income Tax Assessment Act 1936. This part of the Act is very complex with many variables to consider. It is highly recommended that you seek professional advice when it comes to these arrangements and/or request advice from the ATO so you can avoid costly mistakes.